NetBank

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NetBank, Inc.
Traded as NASDAQ: NTBK (1997-2007)
Industry Finance
Fate Closed by the Office of Thrift Supervision. Most of the deposits acquired by ING Direct
Founded 1996
Defunct 2007
Headquarters Alpharetta, Georgia, United States
Key people
Steven F. Herbert, CEO
Products
  • Retail Banking
  • Mortgage Banking
  • Business Finance
Website Archived August 20, 2007, at the Wayback Machine.

NetBank, formerly named Atlanta Internet Bank (1996) and Net.B@nk (1998),[1] was a financial company engaged primarily in retail banking, mortgage banking, business finance, as well as providing ATM and merchant processing services.

Netbank was closed on September 28, 2007, by the Office of Thrift Supervision (OTS) in conjunction with the Federal Deposit Insurance Corporation (FDIC). FDIC insured deposits were acquired by another virtual bank, ING Direct. Several shareholders have filed class action lawsuits against Netbank claiming misrepresentation of the company value during the restructuring period.

In 2012, the NetBank name and domain were sold to BofI Federal Bank by Capital One which had acquired them as part of the ING Direct USA purchase.[2] BofI created a new, unrelated bank using the NetBank name and domain.[3]

History[edit]

NetBank was founded in February 1996 and completed its initial public offering of stock in July 1997. It was one of the pioneers of the Internet banking industry and recognized as one of the first direct banks in the United States. Its headquarters was in Suite 100 of the Royal Centre Three in Alpharetta, Georgia.[4] Using a new business model, NetBank paid higher interest rates for computer-savvy customers in exchange for not having physical bank branches.

NetBank completed its initial public offering of stock in July 1997, raising $42 million.[5]

In 2001, NetBank acquired deposit accounts from CompuBank.[6] NetBank also acquired Market Street Mortgage.[7] In 2002, Netbank acquired Resource Bancshares Mortgage Group.[8] Douglas K. Freeman, was appointed CEO of the company as of March 31, 2002 and was appointed chairman as of January 29, 2003.[9]

In 2003, NetBank added several business and product lines: NetBank expanded into automobiles by offering auto insurance through sister company NetInsurance and direct consumer auto loans through Florida auto dealerships.[10] NetBank also acquired what became NetBank Payment Systems, a provider of off-premises ATM and merchant processing services. Netbank also acquired Financial Technologies Inc, a provider of ATMs and retail transaction processing services.[11]

In July 2004, NetBank acquired the assets of Beacon Credit Services, a leading provider of RV, boat and aircraft financing.[12]

NetBank started to lose money in 2005.[13]

In 2006, Netbank began to offer check deposit services via UPS stores.[14]

In 2006, NetBank recognized that there were some significant operating deficiencies and started to restructure the company in an effort to resume profitability. The company shut down or sold several businesses. Some of the shuttered companies included FTI, payroll and finance services, non-auto (RV, boat and aircraft) loans and the subprime/non-conforming mortgage companies. The independent auditor, Ernst and Young, resigned in 2006. NetBank's mortgage operations suffered greatly. NetBank normally originated loans and resold the loans to other financial institutions on the open markets. Some of the loans that NetBank sold did not meet the underwriting guidelines and NetBank was forced to repurchase these loans from the other banks. Since the loans that did not meet the underwriting guidelines were often past-due loans, NetBank was forced to repurchase a many failed loans that it had written. This loss of capital was very harmful to the company's equity position and was the first clue to the bank's poor financial position.

In 2007, NetBank finally recognized that the restructuring attempt was unsuccessful and the company announced an intention to shut down the company starting in spring 2007. In May 2007, NetBank reached an agreement to sell its core banking operation to EverBank. All accounts were to have been transferred by September 15, 2007, but the deal depended on NetBank coming up with some cash, which it expected to realize from the sale of other investments. NetBank proved unable to sell those investments, and on September 17, 2007, EverBank terminated the agreement.[15]

On May 1, 2007, the ATM and merchant-servicing operation (NetBank Payment Systems Inc) was sold to PAI ATM Services LLC, a subsidiary of Payment Alliance International Inc.[16]

On May 15, 2007, NetBank received a warning from the Nasdaq stock market because it was late in filing its most recent quarterly report. NetBank received a similar notice from Nasdaq in March 2007 because it did not file its 2006 annual report on time.[15] The report was delayed because the company needed to find a new independent auditor following the resignation of Ernst & Young LLP in November 2006. NetBank hired Porter Keadle Moore LLP as its new independent auditor in February 2007. NetBank said it planned to file the annual and quarterly reports by the end of June 2007.[17][18]

On July 3, 2007, NetBank Inc. received a deficiency notice from the NASDAQ Stock Market because its stock for the previous 30 consecutive business days failed to close above the minimum bid price of $1 per share.[19] On August 3, it was delisted from the Nasdaq.

On September 28, 2007, the Office of Thrift Supervision (OTS) announced that it had closed NetBank.[20] The shutdown marked the biggest failure of a savings and loan association since the savings and loan crisis in the 1980s.[21] $1.4 billion in FDIC-insured deposits, as well as some loan assets, were sold to ING Direct for $14 million.[22][23] ING Direct also acquired 104,000 NetBank customers as part of the deal. Customers with balances exceeding the FDIC limit received 50% of the excess balance and became creditors in the bank's receivership for the remainder.[24]

In November 2007, NetBank Inc., parent of the savings-and-loan, filed for Chapter 11 (reorganization) bankruptcy protection and announced intentions to liquidate, including selling its real estate in Columbia, South Carolina as well as its captive insurance subsidiary M.G. Reinsurance Inc. Federal savings and loan associations are prohibited from filing for bankruptcy protection and must be liquidated by the FDIC.[25]

Business model[edit]

NetBank’s former business model had several strategies: Retail and business banking, financial intermediary and transaction processing. All of the bank’s operations and assets were located within the United States of America.

Retail banking[edit]

The retail banking segment consisted of personal and small business banking operations. The major products and services offered through the retail banking segment included individual and small business deposit accounts, mortgages, home equity loans and lines of credit, auto loans, business equipment financing, financial planning and investment services, online bill payment and Visa check and credit cards. NetBank, through its Internet banking operations, operated as an FDIC-insured, federally chartered thrift institution serving approximately 286 thousand customers throughout the United States and in more than 90 foreign countries. NetBank delivered its products and services through remote delivery channels, such as the Internet, telephone and ATMs, that are available 24 hours a day and seven days a week. It did not maintain a branch network to support its banking business. The branchless model provided an opportunity to operate with less overhead expense than traditional branch banks. Customers initially relied on direct deposit and first class mail to make deposits into their accounts, supplemented later by QuickPost (free deposit drop-off at UPS Stores for overnight delivery to NetBank) and ATM deposits.

Financial intermediary[edit]

NetBank also offered several loan products through the financial intermediary segment of business. These products and services included additional mortgages for both conforming and nonconforming products, home equity loans and lines of credit, RV, boat and aircraft loans and NetBank offered an automated mortgage underwriting service.

Transaction processing[edit]

NetBank provided a variety of financial-related processing services to merchants, community banks and other organizations. The Company acquired an ATM and merchant transaction processing operation. During NetBank's peak years, the company operated approximately 8,000 ATMs across the country, which the Company made available to its banking customers on a surcharge-free basis. The network of ATMs ranked as the second largest bank-operated ATM network in the country in 2003.

Criticism[edit]

One of the downsides to having no physical branches was the risk of deposits getting lost, damaged, or delayed in the mail. Several people complained about NetBank losing or delaying payments to the account for a variety of reasons. The invention of deposit-taking ATMs alleviated some of this concern because customers could make the deposit in a local ATM, where the check will post and clear very quickly. The widespread nature of NetBank's customers made it difficult to have an ATM handy for all customers, though and many were still required to use mail-in deposits.

NetBank attempted to alleviate the issue of lost deposits by creating QuickPost, an innovative service where a customer drops a deposit off at a UPS Store location to be shipped overnight to NetBank. The idea behind QuickPost is one shipment could contain deposits from several customers, justifying the additional expense of overnight shipping. However, the product did not take off and NetBank shut down this operation in 2006. Further, the program suffered enormous losses after NetBank tried to sell the service to other banks.

NetBank's CEO sold NetBank his personal residence on two occasions in the years leading up to the failure of NetBank. Each time, NetBank had substantial losses related to the sale of the residence as disclosed in the 2005 Annual Report (Related Party Transaction footnote).

NetBank also encountered several complaints due to NetBank's freezing customer accounts for security reasons. When flagged, the customers were required to send several forms of identification to NetBank before the account would become unfrozen. It is uncertain if the requirements were due to internal NetBank policies or the requirements imposed by the USA Patriot Act.

Shareholders filed class action lawsuits against Netbank and its executives claiming misrepresentation of the company before it was shutdown by regulators. The suits were settled in November 2011 for $12.5 million.[26]

See also[edit]

References[edit]

  1. ^ "Atlanta Internet Bank to become Net.B@nk". Atlanta Business Chronicle. August 10, 1998. 
  2. ^ "Guess Who's Back? NetBank". netbanker. December 13, 2012. 
  3. ^ "BofI Federal Bank Launches NetBank, Checking Account Alternative to Prepaid Cards". nerd wallet blog. December 13, 2012. 
  4. ^ NetBank (January 11, 2001). "Contact Us". Retrieved February 25, 2011. 
  5. ^ NETBANK INC (NTBK) IPO
  6. ^ "NetBank Acquires CompuBank Deposit Accounts" (Press release). PRNewswire. March 29, 2001. 
  7. ^ "NetBank Completes Acquisition of Market Street Mortgage" (Press release). PRNewswire. July 2, 2001. 
  8. ^ "NetBank, Inc. Completes Acquisition of Resource Bancshares Mortgage Group, Inc." (Press release). PRNewswire. April 1, 2002. 
  9. ^ [NETBANK, INC. Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934]
  10. ^ "NetBank Launches Homeowners Insurance Through Sister Company NetInsurance, Inc.; Consumers Now Have Easy Access to Insurance Products for the Home and Auto from Top Providers" (Press release). Business Wire. November 10, 2003. 
  11. ^ "NetBank buys Financial Technologies Inc". Finextra. October 7, 2003. 
  12. ^ "NetBank, Inc. Completes Deal with Beacon Credit Services" (Press release). Business Wire. July 2, 2004. 
  13. ^ "NetBank, Inc. Reports Financial Results for Third Quarter; Loss of $.03 per Share Based on $3.5 Million Provision Related to Previously Identified Issues on a Limited Group of Loans" (Press release). Business Wire. November 14, 2005. 
  14. ^ "Financial Technologies, Inc. Adds ebank to QuickPost Deposit and Payment Forwarding Service" (Press release). Globe Newswire. March 9, 2006. 
  15. ^ a b IN RE NETBANK, INC. SECURITIES LITIGATION
  16. ^ "Payment Alliance International Acquires NetBank Payment Systems" (Press release). Globe Newswire. May 7, 2007. 
  17. ^ Wolfe, Daniel (February 22, 2007). "Despite Revamp, NetBank Will Stay in Red This Quarter". American Banker. 
  18. ^ "NetBank warned of delisting". Atlanta Business Chronicle. March 23, 2007. 
  19. ^ "NetBank, Inc. Receives NASDAQ Deficiency Notice" (Press release). Globe Newswire. July 9, 2007. 
  20. ^ FDIC: Bank Closing Information for NetBank
  21. ^ "Online Bank Fails and Regulators Shut It". Associated Press. New York Times. September 29, 2007. 
  22. ^ "ING DIRECT Acquires Deposits of NetBank" (Press release). Businesswire. September 28, 2007. 
  23. ^ "ING wins from online bank failure". BBC. September 30, 2007. 
  24. ^ Rosencrance, Linda (October 1, 2007). "FDIC shuts down NetBank". Computer World. 
  25. ^ "NetBank says to liquidate in bankruptcy". Reuters. November 26, 2007. 
  26. ^ NetBank Class Action Settlement

External links[edit]